Tuesday, November 22, 2005

Kinetic Concepts, Inc. v. Bluesky Medical Group Inc., 2005 WL 3068223 (W.D. Tex.), involves a variety of claims by one maker of wound treatment products against another. In a series of decisions, the court refused to grant summary judgment to the defendant on these claims; this opinion discusses trademark infringement and dilution as well as false advertising. (Notably, the court is careful to make clear that a dilution by tarnishment claim can only be based on consumers' imputation of the shoddy quality of defendant's product to plaintiff; it is not enough that the defendant's advertising says mean things about plaintiff's product.)

Plaintiff claims that defendant’s advertising campaign falsely compares the parties’ products, plaintiff’s V.A.C. wound drainage system and defendant’s V1. In particular, the ads claim that the V1 performs the same function as the V.A.C., but at lower cost, even though defendant has not conducted any clinical comparison studies. Defendant also stated that the V.A.C. is approved specifically for wound drainage, whereas the V1 performs a variety of functions, implying that the V.A.C. is unidimensional. (Is this material? Is it another variant of a cost-effectiveness claim?)

Notable features of the case: Defendant’s ads state that a hospital can save between $100,000 and $500,000 using the V1, based on product and supply costs. But $500,000 apparently exceeds the maximum savings in defendant’s actual calculations, which claim $342,000 in savings. Is this enough to make the range “$100,000 to $500,000” not false or misleading? The court does not offer an answer.

Plaintiff also offers a survey to show that cost effectiveness, as understood by healthcare professionals, includes the effectiveness of the total treatment regime, including the costs of poor wound healing, and adds anecdotal evidence that defendant’s product sometimes hasn’t healed wounds as well (or as cost-effectively) as the V.A.C. For purposes of denying summary judgment, the court accepts this anecdotal evidence, despite defendant’s evidence that many factors influence wound healing and thus plaintiff’s evidence couldn’t show that the V1 was the cause of poor wound healing. Even if plaintiff's evidence is correct, I'd want to know a lot more about that survey: while doctors and nurses in general may define cost effectiveness broadly -- indeed, it seems natural for them to do so -- I'm not sure that they'd interpret a claim of cost-effectiveness in an ad for a particular product that way; I would think that consumers can be expected to understand that an ad is claiming direct cost benefits and not necessarily assessing total direct and indirect costs, especially if the ad specifically states that its claims are based on "product and supply costs." The plaintiff also has a survey that purports to show that the ads are generally deceptive, but it's not described in the opinion.

Another part of the case raises issues of using the Lanham Act to enforce other federal statutes: the V1 doesn’t qualify for the designation “Negative Pressure Wound Therapy” under Medicare’s definition, but plaintiff uses the term in advertising to describe the V1 anyway. Likewise, though defendant has FDA clearance to market the V1 as “may promote wound healing,” one of its promotions allegedly implies that the V1 affirmatively promotes healing, a claim the FDA hasn’t cleared. (My assessment of the case law is that the FDA claim is shaky – while a straight-up false claim of FDA approval is actionable under the Lanham Act, a statement that merely implies something within the FDA’s jurisdiction and that would require the court to interpret FDA rules is probably not suitable for private enforcement under the Lanham Act.)

Defendant’s ads use the slogan “Consider a better alternative,” and under the Fifth Circuit’s jurisprudence, this could be misleading in combination with specific claims, but the court notes that there’s no evidence that consumers associate the slogan with the ad’s cost-benefit analysis. Nonetheless, the court did not specifically rule out plaintiff’s ability to show that the slogan was misleading.

In a related opinion denying summary judgment against business disparagement claims, the court focused on an ad asking, “Is tearing out healthy tissue part of your negative pressure protocol?” Plaintiff offered evidence that tissue removal was actually a positive sign of healing; thus, the implication that such removal was undesirable could constitute disparagement. The facts may be true, but the "gist" is false, which is actionable under Texas law. Compare this result to claims of "aluminum-free" for deodorant or "rBGH-free" for dairy products, both of which have triggered litigation, with aluminum- and rBGH-using plaintiffs claiming that the defendants falsely implied that plaintiffs' products were dangerous.

The court also found an issue of fact on malice, another necessary element of a common-law business disparagement claim. Likewise, plaintiff’s claim of libel survived, since the defendant’s ad’s rhetorical question “Are you getting VACuumed by your wound drainage company?” could be defamatory. Because plaintiff isn’t a public figure, only negligent falsehood is required to succeed on a libel claim. (One might wonder why plaintiff is bothering with the business disparagement claims, which seem to duplicate the false advertising claims; the libel claim is useful because damages are generally presumed in libel cases, whereas they'd need to be proved for false advertising and business disparagement.)

Monday, November 21, 2005

First Google wouldn't show full pages from a congressional hearing because it thought the hearing was under copyright. Then I discovered this beauty, Larry Lessig's Free Culture, which is available under a CC license -- but not from Google!

Yes, it's certainly simple to check the status of a work and ask permission from the copyright owner every time you want to use one, isn't it?

Saturday, November 19, 2005

The site Worth1000.com has a number of graphics contests, including some that are worth money; it also hosts ads. When it runs a contest for images of superheroes Photoshopped into well-known artworks, is it engaging in copyright or trademark infringement? Contributory copyright or trademark infringement? Does the answer differ if the underlying artwork is still in copyright? In other words, even if the resulting work is transformative and critical with respect to the superhero, is it necessarily transformative and critical with respect to the original painting? My favorites include Spiderman in Norman Rockwell (note that the site hosts an image of the original Rockwell for comparison purposes: what result there?) and American Goblin, both of which would allow two sets of rights claimants to object. Also good, but potentially riling only one copyright owner at a time, are the Annunciation with Dalek, Henry Incredible, Jack Jack Madonna, and Wonder Woman.

Likewise, there are potential right of publicity issues with the Celebrity Cyborgs and Celebrity Time Travel contests (not to mention copyright issues with the specific photos used as the bases for these entries), and I'm not even sure what to say about the Racial Profiling series, which is pictures of celebrities manipulated to give them different racial markers, variously interpreted by the entrants to include skin tone, other facial/hair features, and cultural markers (bindi, dreadlocks, etc.). It's a popular topic, with many more entries than most of the other topics I browsed.

It is perhaps ironic, given the likely sources of most of the original images, that there are prominent warnings at the top of gallery pages indicating that Worth1000 claims copyright in the galleries and stating, "You may NOT repost any of the entries inside this gallery on external sites (including messageboards and non-profit sites) without Worth1000's express permission."

Friday, November 18, 2005

I participated in Randy Picker's MobBlog on Julie Cohen's recent paper advocating looking at copyright law from the perspective of a situated user rather than an economic or romantic user. (Want to know what she means? Read the paper, it's fun.) My posts are here and here.

... was to call Sony's DRM-protected CDs "infected." Denotationally, the use seems wrong, but the connotation is rhetorically perfect and memetically powerful (48,200 results for "sony 'infected cds'").

Thursday, November 17, 2005

Allsup, Inc. v. Advantage 2000 Consultants, Inc., -- F.3d --, 2005 WL 3054130 (8th Cir. 2005), was a slightly unusual Lanham Act case. The defendant A2K had been formed by former employees of the plaintiff. Basically, plaintiff offers services to insurance carriers, helping them reclaim benefits overpaid to insureds. In 2001/2002, three insurance carriers asked A2K to bid on their overpayment recovery business; A2K did so, representing that it would be capable of providing overpayment recovery services in time to fulfill any contracts that it won. Allsup claimed that it was in the process of patenting its automated overpayment recovery system and threatened to sue; A2K withdrew its bids.

Not satisfied, Allsup sued for reverse passing off, false advertising, and state common-law claims. The district court dismissed all claims and Allsup appealed on the false advertising count. (I didn't go back and check, but I'm guessing Dastar had something to do with the failure of the reverse passing off claim.) The allegedly false claims dealt with A2K's claims that it would, in the future, enter the overpayment recovery market and be able to serve insurers.

Though there are many possible issues -- whether statements to only three companies can constitute "advertising or promotion" within the meaning of the Lanham Act; whether the statements of future intent constituted representations of fact or opinion; whether the highly sophisticated targets of A2K's claims should understand the difference between an operational business and a planned business; and so on -- the court of appeals found it sufficient to address simple falsity. Though A2K ultimately didn't enter the overpayment recovery market, Allsup put forth no evidence that A2K lacked either capacity or intent to do so at the time it made the representations. (Here is an unusual instance where intent is directly relevant to a Lanham Act claim, much as it is relevant in a bait-and-switch claim.)

The court did bobble a bit on implied falsity, simply reiterating that A2K's statements about intent and capacity were true, as if that were the end of the matter. Some true claims can, of course, be misleading; the court may have meant that Allsup identified no potentially misleading implications of these particular true statements, and in any event offered no evidence that a reasonable insurance company might have been misled. Interestingly, the court contrasted "literally false" statements with statements that are "false in context," which is not quite the same thing as implicitly false statements, though there is doubtless some overlap. I'm reminded of the Avis/Hertz case, which held that claims about how many cars a rental company "has" were not literally false when they were true of the available rental fleet though not true of the total cars owned by the companies; the context of an ad for rental cars made the claim literally true.

Ten years ago, Duke Law Professor Jamie Boyle suggested that the history of the environmental movement offered powerful theoretical and practical lessons to those who sought to recognize the importance of the public domain, and to expose the harms caused by a relentlessly maximalist program of intellectual property expansion.

On March 11-12, 2006, Stanford Law School's Center for Internet and Society will host a symposium to explore the development and expansion of the metaphor of "cultural environmentalism" over the course of ten busy years for intellectual property law. We've invited four scholars to present original papers on the topic, and a dozen intellectual property experts to comment and expand on their works.

Molly Van Houweling explores voluntary manipulation of intellectual property rights as a tool for cultural environmentalism. Susan Crawford extends Boyle's analysis to the age of networks. Rebecca Tushnet looks at the ways in which the law's impulse to generalize complicates the project of cultural environmentalism, and Madhavi Sunder looks at how the metaphor affects traditional knowledge. Professor Boyle will also offer some remarks, as will Stanford Law School's Professor Lawrence Lessig.

My mother-in-law brought over some old books for Leonard, and included, for our mocking pleasure, Walt Disney's Mickey Mouse and the Boy Thursday, published in 1948, a book so offensive that, as she says, it makes Little Sambo look like an anti-racist training manual. You can find the complete scanned text & pictures a few places around the web, including a self-proclaimed "sick" site and a white supremacist site. Google them if you must. I checked Gutenberg's renewal list and found that the book had indeed been properly renewed. How do we copyright minimalists feel about the possibility of Disney using its copyright to suppress these reproductions?

Kevin Trudeau, infomercial king, convicted credit-card fraudster, and repeated head-butter with the FTC, lost a battle in the Court of Claims recently in Trudeau v. United States, 68 Fed.Cl. 121 (2005). Trudeau's move from infomercials making false and unsubstantiated claims about potential health benefits to a best-selling book making similar claims, the latter of which gets substantially more First Amendment protection, is detailed in a good Salon article. After settling the latest FTC action against him, Trudeau filed suit against the FTC for breaching an implied covenant of good faith and fair dealing by announcing in the press release that he had admitted wrongdoing, while the settlement agreement recites that Trudeau denies any wrongdoing. Because the government was acting in its sovereign capacity, protecting the public interest, the Court of Claims found that it lacked subject matter jurisdiction under the Tucker Act.

Of course, Mr. Trudeau is still laughing all the way to the bank, since his book (I have rarely been more tempted to use scare quotes) continues to sell, despite the fact that it apparently offers little but assertions, phrases in all caps, and exhortations to sign up for a $499 service that will give you real health tips.

United States v. Lane Labs-USA, Inc., 427 F.3d 219 (3d Cir. 2005), deepened a fifty-year-old circuit split. The district court found that a seller of the supposed cancer treatments BeneFin (shark cartilage) and SkinAnswer (glycoalkaloid) had committed misbranding and false advertising in violation of the Food, Drug and Cosmetic Act (FDCA). The court of appeals upheld the district court's equitable power to order restitution to consumers, despite the absence of explicit authorization for restitution in the text of the FDCA.

For some reason, West apparently just added Folbaum v. Rexall Sundown, Inc., 2004 WL 3574116 (N.J.Super.A.D.), a case upholding an individual claim against the defendant for false advertising of "Calcium 900," a supplement which only delivered 900 mg of calcium if you took three pills. Though the back of the bottle advised taking "three (3)" for the suggested adult usage of 900 mg, the plaintiff testified she didn't read the back and believed that she was taking 900 mg in each pill. Though the court upheld a jury verdict under the New Jersey Consumer Fraud Act, it reversed the class certification on the ground that class members were only united by a state of mind (the state of having been fooled by the supplement's name). Although a NJCFA plaintiff need not prove reliance, she must prove causation linking the false claim to some harm suffered; those who purchased the supplement understanding that each pill had 300 mg suffered no ascertainable loss and thus could not properly be part of the class.

My calcium supplement is called "Calcium 1000," and requires 4 pills to get to the 1000 mg level; a bottle of 180 therefore lasts 45 days. Apparently Folbaum's limited success was not enough to get supplement manufacturers to change their ways.

Thursday, November 10, 2005

Is a false advertising claim under the Lanham Act subject to the heightened pleading requirements for fraud under the Federal Rules? Judge Joyner of the Eastern District of Pennsylvania considered this surprisingly unlitigated question in H.H. Fluourescent Parts, Inc. v. DM Technology & Energy, Inc., 2005 WL 2972986. Citing a handful of other cases, Judge Joyner ruled that Lanham Act false advertising counterclaims are not purely fraud claims and thus need only satisfy the "short and plain statement" requirement of Rule 8, rather than the heightened pleading requirement of Rule 9.

Pennsylvania's claims are based on allegedly inflated prices charged by the drug companies to various state purchasers, including Medicaid. The state argues that the companies used a published "Average Wholesale Price" (AWP) that was up to hundreds of times what an actual average wholesale price was, and that the state relied on the representation of AWP. State reimbursement rates to physicians are based on the AWP; if there is a difference between the AWP and the price the physician actually pays for the drug, s/he can pocket the difference. Inflated AWP thus provides physicians an incentive to prescribe the drugs with the greatest "spread." In addition, the companies provided free samples to physicians, and the state alleges that the companies knew that physicians were charging the state as if they had paid. The companies are accused of unjust enrichment, misrepresentation or fraud, violations of the Unfair Trade Practice and Consumer Protection Law (UTPCPL), and civil conspiracy. This is one of several similar lawsuits (Pennsylvania has even already settled some of its Medicaid claims).

Yesterday's decision upheld the sufficiency of an amended complaint, which had been amended to satisfy Pennsylvania's pleading requirements for fraud-type claims. Among the arguments of interest: the companies claimed that they never made any representations that the published AWP was factually the average wholesale price. What, they didn't pinky swear that something called the "average wholesale price" was in fact the average wholesale price? The court had little difficulty finding that the complaint sufficiently alleges that "persons for whom this information is relevant would have a reasonable basis to rely on the reported AWP as being something more substantial than a number selected arbitrarily." With respect to the misrepresentation/fraud claims, the companies claimed they had no duty to disclose the fact that the AWP was not the average wholesale price, thus characterizing the state's claim as one for non-disclosure. The court rejected this position, agreeing that the evidence could establish that no one expected AWP to really mean average wholesale price, but finding that the complaint sufficiently alleged that submission of figures called "AWP" to publishers was a representation of something like the actual average wholesale price. Relatedly, though there is evidence that the state should have known that AWP wasn't in fact average, factual disputes exist about whether the state justifiably relied on the published AWPs.

Illustrating some of the differences between the statutory and common-law bases for consumer protection claims, the state's UTPCPL claims differed from simple misrepresentation -- the state alleged, inter alia, false representations of source or sponsorship; advertising goods with intent not to sell them as advertised; and making false or misleading statements of fact concerning the reasons for, existence of, or amounts of price reductions -- the latter two being specifically prohibited types of conduct. Advertising with intent not to sell as advertised presumably targets "bait and switch" tactics, but on its face covers the allegations here as well. The price reductions provision of the statute presumably targets fake "going out of business" or "50% off" claims.

The court upheld the state's "source confusion" claim on the theory that the companies' conduct "created confusion or misunderstanding as to the source of the drugs, such as when a doctor uses a sample drug he received at no cost to himself and administers the drug to a patient who assumes that 'the source of the drug is Defendants' commercial sales channels.'" I'm not sure how this states a claim, since a causal connection between that confusion and any harm the state suffered when paying patients' claims seems lacking -- and I'm not sure a patient would find the channels of commerce material, either.

Given the amounts at stake, these drug pricing cases are surely far from over.

Friday, November 04, 2005

I am going to try to blog recent false advertising cases, in the fashion of the TTABlog and similar sources of topic-specific updates.

Today's entry is Whalen v. Pfizer, Inc., 2005 WL 2875291 (N.Y. Sup. 2005), a follow-up to the successful Lanham Act suit against Pfizer by McNeil-PPC, the largest seller of floss, for PFizer's ads claiming that Listerine is as effective as floss at controlling plaque between the teeth. While the court enjoined the ads at McNeil's behest, the consumer class action so far fared less well. The New York state court rejected class certification, reasoning that commonality was lacking because there was no one message that the members of the class all saw; indeed, the class plaintiff couldn't remember a specific Listerine ad she saw.

According to McNeil v. Pfizer, the consumer ad campaign was limited (I believe to three TV ads and a shoulder tag), all of which made the challenged claim, so it's hard to see why the class doesn't define itself. It's not as if this was a 20-year campaign, interspersed with other campaigns. The class plaintiff's faulty memory is more important. The decision indicates that she was very poorly selected and had no memory or knowledge of the basic claims of Pfizer's ads: "during her deposition, Whalen, the proposed representative of the class, admitted that she could not identify any commercial which influenced her to purchase Listerine. Furthermore, in open court, she admitted that she could not recall seeing any of Pfizer's alleged deceptive marketing ads, and that she was unfamiliar with the actual suit pending before this court."

In addition, proof of harm would have to be shown for each individual, making certification inappropriate. The putative class representative, for example, used Listerine before and after the ads ran, and also continued to use floss, suggesting she wasn't damaged by any falsity but was just being loyal to her brand. Even though plaintiffs need not show reliance on the false representations under NY consumer protection law, they must show harm. (Presumably this means they must show that the overall ads, if not specifically the false parts of the ads, caused a purchase, or in this case caused them to forego flossing.)

Furthermore, since the claim in this case is that consumers could be harmed if they switched from flossing to Listerine, only those consumers who did floss regularly could be harmed -- non-flossing consumers who believed the Listerine message wouldn't suffer the same damage. As to consumers whose only harm was economic -- they bought the product as a result of the false ads -- it would be hard to prove this harm because they probably didn't keep receipts. (This reasoning strikes me as contrary to the purpose of consumer class actions generally, which is to aggregate claims that in the individual case are too small to worry about but together are more substantial and market-distorting; by their nature, these claims are ones for which consumers are unlikely to keep records.)

Just as the consumer protection claims failed for want of commonality, so with plaintiff's unjust enrichment claims. Plaintiff failed to adequately explain her theory of damages, and she herself continues to buy and use Listerine, which makes her claim of damage hard to understand. Interestingly, the court suggests that it is the continued use of Listerine that defeats commonality, since the court would have to conduct an individual inquiry to see whether consumers continued to use Listerine even after they knew of Pfizer's misrepresentations. This seems a dangerous line of thought to me -- it suggests that a popular product, which many people are already using, can make misrepresentations with near impunity, since it will be very hard to show a change in market share, and since the advertiser can rely on habit to continue sales even when the challenged campaign goes off the market.

Finally, for the reasons mentioned above, plaintiff flunked the typicality requirement, and the court did not believe that she was a representative who'd fairly and adequately represent the claims of the class. The court agreed that a class action would be superior to other forms of litigation had the plaintiff shown commonality, but she didn't.

Consider the more general tension between the class certification standards -- which require proof "that each plaintiff was reasonably deceived by the defendant's misrepresentations and was injured by reason thereof" -- and the Lanham Act standard, which allows competitor standing by showing a general likelihood that the competitor is harmed by the advertising. A competitor gets probabilistic standing, but not a class. Is this the right way to go?

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